Are You Selling “Green Caps” in China? – A Cautionary Tale of China Market Entry

A few years ago, a delegation from China was visiting a plant in the States. Prior to going inside the facility, the group was asked to put on a safety cap. It took the plant’s management by surprise that everyone in the Chinese visiting group refused to put one on even after they explained why and that it was mandatory by law.

Are You Selling “Green Caps” in China?

Inquiring as to why, the response was that the cap is green. So what? Well, a green cap has a unique meaning in China. Whoever is wearing a green cap, males in particular, are considered to have been cheated on by their spouses. If that were the case, would you want to wear a green cap?

When you are doing business in China, or any overseas markets, how do you know your products and services are not regarded in the same ways as the “green cap” in our story? Your product or service could be clashing with cultural values, provoking superstitions, or just going against social preferences and traditions.

As a China business consultant, I can tell you that foreign companies going into China make those mistakes quite often. American companies such as EBay, Mattel, and Home Depot have all had a hard time in China, not because of their products, but because their approaches do not agree with Chinese culture and traditions. Let’s look at a few more cases in-depth to get a better understanding of the pitfalls that exist out there.

Lost in Translation

Another case in point, Burger King in China launched a drink in their restaurants called The PooPoo* Smoothie. It’s a mango-flavored slushy with what tastes like lychee flavored “pulp pearls” on the bottom of the cup. It’s topped off with a swirl of soft serve vanilla ice cream. If you are familiar with East Asian drink preferences, you’d assume this would be a big hit.

But PooPoo means something different in mainland China than it does in Taiwan. PooPoo is a word often used by young children who have to go number 2. It is the opposite of what Burger King wanted to associate a delicious drink with. How often do you simply translate your marketing message into a foreign language? Even between neighbors such as Taiwan and mainland China, there are still sometimes vast differences in language and culture.

Taobao Succeeded While Ebay Failed

Ebay and Taobao both launched online platforms around the same time. Ebay is a two-billion dollar company and has achieved global success prior to coming to China. Alibaba, which owns an online platform connecting foreign buyers and Chinese suppliers, launched Taobao one year after Ebay entered China. Even though Ebay had the first mover advantage, Taobao succeeded while Ebay failed. Why? Let’s look at some of those reasons:

Taobao is a local company and has a good understanding of Chinese culture. Their revenue model was realistic and suits Chinese customers who, at that time, were cautious regarding the new businesses of online marketplaces.

Understanding this, Taobao’s revenue comes from online advertisement whereas Ebay used the same strategy it was using in the US, charging fees for online vendors to sell their wares. Ebay’s model was not received well by Chinese customers who did not want to pay for fees to sell their goods like American customers do.

Furthermore, around 2003, it was the beginning of a revolution in online business development in China. Marketplace development moved fast. Being a local company, Taobao reacted just as fast, introducing customer service tools, communications platform, and payment services.

When Ebay entered China in 2002, the penetration rate of credit card ownership was relatively low. Those with one credit card had not had it for too long. There were security concerns regarding giving credit card information to someone that they had never met. Ebay’s model did not address this concern. They launched the same business model in China that they were operating in the US, without bothering to research cultural differences.

As a global company with attention divided among its many operations, Ebay also did not respond to the market trends as fast as they could have, even when they did recognize them. China was not the largest nor most profitable market at this early stage, why should they pay extra attention? Alibaba felt differently. They had to win and they were willing to invest to win. So Ebay both didn’t react fast enough and didn’t invest enough time and energy to stay competitive.

Finally, Ebay misread Chinese culture on the subject of price. Chinese people are price sensitive and they like deals. They are also relationship-oriented. They are not comfortable bidding against others, even anonymously online. Taobao understands this culture, but Ebay did not. Taobao allows flat-rate pricing, which is a type of innovation in itself in a country where almost everything is negotiated for. In addition, Taobao did not pit customers against each other to get the deal, thereby not butting up against the same cultural concerns that Ebay did.

Hopefully these case studies have given you some insights into the importance of researching cultural differences before launching products and services. Maybe you have a wonderful cap to sell, you noticed that Chinese people wear caps, and they may own 1-2 caps each. You are excited about the opportunity to sell your company’s caps. Just make sure they’re not green ones. No one will buy them.

Casey W. Xiao-Morris is a veteran China Business Consultant at Leverage China, LLC., helping her clients succeed in the Chinese marketplace. Casey can be reached at cxmorris@LeverageChina.com.